Real Gross Domestic Product or GDP growth slowed to an estimated 1.3 percent in 2013 from 3.4 percent of 2012. In January 2013, we projected 3.6 percent growth for 2013, but while the global economy has continued to improve at a moderate pace, Russia's is struggling to find its footing.
... See More + The first part of this report explores the recent economic developments that underlie this slowdown. To emerge from the downturn with improved long-term prospects Russia will need a combination of cyclical and structural policy measures. As the relative weight of the reasons for Russia's downturn is tilted toward structural factors, structural measures will need to lead the rebound. The lack of more comprehensive structural reforms in the past has led to a gradual erosion of investor confidence. This was masked by a growth model based on large investment projects, continued increases in public wages, and transfers, all fueled by sizeable oil revenues. Recent events around the Crimea have compounded the lingering confidence problem into a crisis of confidence and more clearly exposed the economic weakness of this growth model. Investor pessimism became the decisive factor affecting Russia's economic outlook, presented in part two of the report. The special focus note in part three discusses the link between Russia's growth in the past decade and how it fueled an unprecedented growth in household welfare.
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Real Gross Domestic Product or GDP growth slowed to an estimated 1.3 percent in 2013 from 3.4 percent of 2012. In January 2013, we projected 3.6 percent growth for 2013, but while the global economy has continued to improve at a moderate pace, Russia's is struggling to find its footing.
... See More + The first part of this report explores the recent economic developments that underlie this slowdown. To emerge from the downturn with improved long-term prospects Russia will need a combination of cyclical and structural policy measures. As the relative weight of the reasons for Russia's downturn is tilted toward structural factors, structural measures will need to lead the rebound. The lack of more comprehensive structural reforms in the past has led to a gradual erosion of investor confidence. This was masked by a growth model based on large investment projects, continued increases in public wages, and transfers, all fueled by sizeable oil revenues. Recent events around the Crimea have compounded the lingering confidence problem into a crisis of confidence and more clearly exposed the economic weakness of this growth model. Investor pessimism became the decisive factor affecting Russia's economic outlook, presented in part two of the report. The special focus note in part three discusses the link between Russia's growth in the past decade and how it fueled an unprecedented growth in household welfare.
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Russia's economy lost steam in 2013. Growth slowed to 1.4 percent in the first half (H1) of 2013, compared to 4.5 percent in H1 2012. This report examines in its first part several aspects of the economic slowdown.
... See More + It shows that the slowdown was largely the result of weaker demand, which was due to a combination of external and domestic factors, some of which are cyclical and others structural. The structural challenges to the Russian economy and its growth, such as non-competitive sectors and markets, are another important factor to consider in the economic slowdown. The special focus note in part three of this report discusses the link between growth patterns in Russia, firm survival and diversification in manufacturing and will also highlight the impact of limited competition as a structural constraint. This note looks at the role of growth volatility as a possible explanation. It examines the role of surges and slumps in manufacturing output and its microeconomic implications in the dynamics of emergence and sustainability of nascent economic activities. The dynamics of the industrial output of the economy as whole, between 1993 and 2009, are the focus of this study. This note examines the downturns that magnify and accelerate the cleansing effects to the economy in forcing inefficient firms to exit, as well as the upturns that set the foundations of economic diversification by giving new economic activities the opportunity to emerge. This note has three main findings. First, Russian manufacturing output growth is characterized by a higher volatility than other comparator countries. Second, this volatility is mostly driven by more numerous, deeper and longer slumps and is mostly associated with aggregate slumps that have yearly effects. Third, while the economic surges increase the probability that productive firms remain in the market, the same is not true of economic slumps-older firms, not necessarily more productive ones, are more likely to survive the downturn. Furthermore, in sectors in which competition is less fierce, firms have a higher likelihood of weathering a slump.
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Russia's economy lost steam in 2013. Growth slowed to 1.4 percent in the first half (H1) of 2013, compared to 4.5 percent in H1 2012. This report examines in its first part several aspects of the economic slowdown.
... See More + It shows that the slowdown was largely the result of weaker demand, which was due to a combination of external and domestic factors, some of which are cyclical and others structural. The structural challenges to the Russian economy and its growth, such as non-competitive sectors and markets, are another important factor to consider in the economic slowdown. The special focus note in part three of this report discusses the link between growth patterns in Russia, firm survival and diversification in manufacturing and will also highlight the impact of limited competition as a structural constraint. This note looks at the role of growth volatility as a possible explanation. It examines the role of surges and slumps in manufacturing output and its microeconomic implications in the dynamics of emergence and sustainability of nascent economic activities. The dynamics of the industrial output of the economy as whole, between 1993 and 2009, are the focus of this study. This note examines the downturns that magnify and accelerate the cleansing effects to the economy in forcing inefficient firms to exit, as well as the upturns that set the foundations of economic diversification by giving new economic activities the opportunity to emerge. This note has three main findings. First, Russian manufacturing output growth is characterized by a higher volatility than other comparator countries. Second, this volatility is mostly driven by more numerous, deeper and longer slumps and is mostly associated with aggregate slumps that have yearly effects. Third, while the economic surges increase the probability that productive firms remain in the market, the same is not true of economic slumps-older firms, not necessarily more productive ones, are more likely to survive the downturn. Furthermore, in sectors in which competition is less fierce, firms have a higher likelihood of weathering a slump.
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Russia's economy grew 3.4 percent in 2012, down from 4.3 percent in 2011. The economy of Russia slowed in the second half of the year due to weak net exports, negative base effects, and destocking at the end of the year.
... See More + More than four years after the global financial crisis hit, the world economy remains sluggish. Industrial production lost momentum throughout last year, exports expanded only at a moderate pace, and imports even declined for three month during autumn 2012. Growth declined mainly due to weaker performance of investment. Inventories were flat as the restocking cycle after the crisis came to an end, and fixed investment expanded only moderately as business remained cautious about future prospects. The weaker performance of the tradable sectors reflects sluggish global demand and the poor agricultural harvest but also low competitiveness in parts of the industry, as growth declined for all three subsectors. The capital account strengthened in 2012 as net capital outflows decreased. According to preliminary estimates, the capital account deficit amounted to US$40.9 billion or 2 percent of Gross Domestic Product (GDP) in 2012, compared to US$76.2 billion or 4 percent of GDP in 2011. The labor market remains tight. The unemployment rate declined across the country, and vacancy and replacement rates increased. The number of poor people in Russia reached a record low. In the first nine months of 2012, some 17.2 million of people were below the poverty line, three million less than a year ago and the lowest number in the last two decades. The weak external environment, high inflation, flat oil prices and sluggish domestic demand are set to postpone a pickup in growth towards the second half of 2013. Nevertheless, modest growth and lower inflation are projected to reduce poverty further.
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Russia's economy grew 3.4 percent in 2012, down from 4.3 percent in 2011. The economy of Russia slowed in the second half of the year due to weak net exports, negative base effects, and destocking at the end of the year.
... See More + More than four years after the global financial crisis hit, the world economy remains sluggish. Industrial production lost momentum throughout last year, exports expanded only at a moderate pace, and imports even declined for three month during autumn 2012. Growth declined mainly due to weaker performance of investment. Inventories were flat as the restocking cycle after the crisis came to an end, and fixed investment expanded only moderately as business remained cautious about future prospects. The weaker performance of the tradable sectors reflects sluggish global demand and the poor agricultural harvest but also low competitiveness in parts of the industry, as growth declined for all three subsectors. The capital account strengthened in 2012 as net capital outflows decreased. According to preliminary estimates, the capital account deficit amounted to US$40.9 billion or 2 percent of Gross Domestic Product (GDP) in 2012, compared to US$76.2 billion or 4 percent of GDP in 2011. The labor market remains tight. The unemployment rate declined across the country, and vacancy and replacement rates increased. The number of poor people in Russia reached a record low. In the first nine months of 2012, some 17.2 million of people were below the poverty line, three million less than a year ago and the lowest number in the last two decades. The weak external environment, high inflation, flat oil prices and sluggish domestic demand are set to postpone a pickup in growth towards the second half of 2013. Nevertheless, modest growth and lower inflation are projected to reduce poverty further.
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Early in the year, as the global economy was slowing and the euro area entered a recession, Russia's economy held steady. But now, as 2012 is entering its final quarter, growth is slowing.
... See More + Just at a time when Russia's output levels have exceeded the pre-crisis peak, the economy is settling onto a lower trajectory, even though oil prices have stayed high. But let us start with the strong points. The economy had a good first half of the year. While growth was stalling in Europe and slowing in other emerging economies, it remained steady in Russia. Key economic indicators were near or at record levels: the current account surplus stayed high and the Central Bank of Russia added to its reserves, helping to bolster market confidence. Capital outflows, long regarded as one of the soft spots of Russia's economy, declined in the second and third quarters of 2012 from the peaks in the previous two quarters. Whereas many countries in Europe are struggling with large public debt and high fiscal deficits, Russia's federal government public debt is close to single digit and the fiscal balance is in surplus. Inflation and unemployment rates declined to their lowest level in two decades. As people's purchasing power improved and more people had jobs, fewer people were in poverty than at any time since the beginning of the economic transition. A challenging external environment and worsening sentiments among businesses and consumers translate into weak growth prospects. Excluding the crisis years of 1998 and 2009, growth in 2012 is set to decline to its lowest rate in a decade and a half. And 2013 is unlikely to look much better. The weak outlook means that strong, three-pronged policy action is essential to reinvigorate the economy. First, economic policies have to ensure stability. The recent tightening in monetary policy was an important step in this direction. Second, Russia has to build buffers against the external volatility. This means replenishing the reserve fund, moving towards inflation targeting and strengthening banking supervision. Finally, the government has to lift the growth potential of the economy. This means raising productivity and competitiveness, diversifying the economy, and improving transport connectivity, as discussed in the last section of this report, in line with its longer-term economic policy goals. Making headway on this agenda will enable Russia to lift growth above 4 percent and more.
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Early in the year, as the global economy was slowing and the euro area entered a recession, Russia's economy held steady. But now, as 2012 is entering its final quarter, growth is slowing.
... See More + Just at a time when Russia's output levels have exceeded the pre-crisis peak, the economy is settling onto a lower trajectory, even though oil prices have stayed high. But let us start with the strong points. The economy had a good first half of the year. While growth was stalling in Europe and slowing in other emerging economies, it remained steady in Russia. Key economic indicators were near or at record levels: the current account surplus stayed high and the Central Bank of Russia added to its reserves, helping to bolster market confidence. Capital outflows, long regarded as one of the soft spots of Russia's economy, declined in the second and third quarters of 2012 from the peaks in the previous two quarters. Whereas many countries in Europe are struggling with large public debt and high fiscal deficits, Russia's federal government public debt is close to single digit and the fiscal balance is in surplus. Inflation and unemployment rates declined to their lowest level in two decades. As people's purchasing power improved and more people had jobs, fewer people were in poverty than at any time since the beginning of the economic transition. A challenging external environment and worsening sentiments among businesses and consumers translate into weak growth prospects. Excluding the crisis years of 1998 and 2009, growth in 2012 is set to decline to its lowest rate in a decade and a half. And 2013 is unlikely to look much better. The weak outlook means that strong, three-pronged policy action is essential to reinvigorate the economy. First, economic policies have to ensure stability. The recent tightening in monetary policy was an important step in this direction. Second, Russia has to build buffers against the external volatility. This means replenishing the reserve fund, moving towards inflation targeting and strengthening banking supervision. Finally, the government has to lift the growth potential of the economy. This means raising productivity and competitiveness, diversifying the economy, and improving transport connectivity, as discussed in the last section of this report, in line with its longer-term economic policy goals. Making headway on this agenda will enable Russia to lift growth above 4 percent and more.
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Half a year ago, Russia's economic prospects looked uncertain. The global economy was losing momentum, the expansion in the euro area was grinding to a halt and commodity prices were beginning to fall.
... See More + Yet, while output growth is slowing this year in line with weaker growth in Europe and elsewhere, Russia's latest economy performance has been solid, though aided by favorable oil prices. The economy returned to the pre-crisis peak towards the end of last year, supported by strong consumption, as growth held steady at the same rate as in 2010. In 2011, measured in current dollars, Russia's economy was the ninth biggest in the world, compared to the eleventh biggest in 2007. This year, Russia's output might exceed US$2 trillion. Equalizing for prices difference with purchasing power parity, Russia's economy is already the sixth biggest today. The current account looks strong thanks to a large surplus in the trade balance, and the Central Bank of Russia added again in 2011 to its stock of foreign reserves. Employment returned to pre-crisis levels even earlier than output, and wages grew at a solid pace. Inflation reached its lowest level in two decades. Inequality declined and consumption levels of low-income households improved. The fiscal balance returned to a surplus. And while average public debt levels in advanced economies exceeded 100 percent of growth domestic product (GDP) in 2011, Russia's public debt was no more than 10 percent of GDP. Economic policies can help to shore up Russia's resilience in a volatile economic environment, diversify its economy, and strengthen its growth potential. First, fiscal policy should be used to rebuild fiscal buffers while oil prices are high. This will not only help to prepare for the next crisis, but also make sure that fiscal policy does not become procyclical as the output gap closes. Furthermore, monetary policy should continue to focus on low inflation, and financial policies on strengthening oversight. Finally, removing structural barriers to growth can help to bolster investment and productivity. Improving the business environment will go a long way to make the most of the economic benefits of Russia's World Trade Organization accession in summer 2012.
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Half a year ago, Russia's economic prospects looked uncertain. The global economy was losing momentum, the expansion in the euro area was grinding to a halt and commodity prices were beginning to fall.
... See More + Yet, while output growth is slowing this year in line with weaker growth in Europe and elsewhere, Russia's latest economy performance has been solid, though aided by favorable oil prices. The economy returned to the pre-crisis peak towards the end of last year, supported by strong consumption, as growth held steady at the same rate as in 2010. In 2011, measured in current dollars, Russia's economy was the ninth biggest in the world, compared to the eleventh biggest in 2007. This year, Russia's output might exceed US$2 trillion. Equalizing for prices difference with purchasing power parity, Russia's economy is already the sixth biggest today. The current account looks strong thanks to a large surplus in the trade balance, and the Central Bank of Russia added again in 2011 to its stock of foreign reserves. Employment returned to pre-crisis levels even earlier than output, and wages grew at a solid pace. Inflation reached its lowest level in two decades. Inequality declined and consumption levels of low-income households improved. The fiscal balance returned to a surplus. And while average public debt levels in advanced economies exceeded 100 percent of growth domestic product (GDP) in 2011, Russia's public debt was no more than 10 percent of GDP. Economic policies can help to shore up Russia's resilience in a volatile economic environment, diversify its economy, and strengthen its growth potential. First, fiscal policy should be used to rebuild fiscal buffers while oil prices are high. This will not only help to prepare for the next crisis, but also make sure that fiscal policy does not become procyclical as the output gap closes. Furthermore, monetary policy should continue to focus on low inflation, and financial policies on strengthening oversight. Finally, removing structural barriers to growth can help to bolster investment and productivity. Improving the business environment will go a long way to make the most of the economic benefits of Russia's World Trade Organization accession in summer 2012.
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Russia's economic growth slowed in the second quarter of 2011 as the inventory restocking cycle waned. High oil prices have kept the external current account in surplus but capital outflows continue.
... See More + Gradually improving labor market conditions and access to credit and external borrowing are supporting domestic consumption but consumer confidence and external risks are constraining a more robust growth in domestic demand. Inflation is on a downward trend because of seasonal factors. The short-term fiscal situation is favorable mainly because of high oil prices with an almost balanced budget this year. But a large non-oil deficit requires concerted medium-term fiscal adjustment to replenish fiscal buffers and to move toward long-term sustainable levels of the non-oil deficit.
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Russia's economic growth slowed in the second quarter of 2011 as the inventory restocking cycle waned. High oil prices have kept the external current account in surplus but capital outflows continue.
... See More + Gradually improving labor market conditions and access to credit and external borrowing are supporting domestic consumption but consumer confidence and external risks are constraining a more robust growth in domestic demand. Inflation is on a downward trend because of seasonal factors. The short-term fiscal situation is favorable mainly because of high oil prices with an almost balanced budget this year. But a large non-oil deficit requires concerted medium-term fiscal adjustment to replenish fiscal buffers and to move toward long-term sustainable levels of the non-oil deficit.
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Russia has seen even higher oil windfall in the past few months, which translates into likely fiscal surpluses this year and next. The government should not miss the opportunity provided by a large oil windfall to substantially improve its long-term fiscal position, further reduce inflation, and, therefore, ensure a strong basis for durable stability and healthy growth in the future.
... See More + Rising domestic demand and credit activity are increasingly supporting solid growth. Overall, labor market conditions improved recently while poverty was broadly flat during and after the crisis, but unemployment and poverty in many regions remain difficult. Further reductions in poverty will require greater policy focus and persistence in implementing more effective and targeted programs, especially in the poorest regions. Two new special-topic analyses focus on export diversification in Russia, and food and energy inflation in Europe and Central Asia region. In the first, results show that productivity is the key to exports and that lack of competition and entrepreneurial innovation are relevant obstacles to the emergence of new, potentially exportable products. In the second, it is shown that food and energy prices in Russia and other countries in Europe and Central Asia are contributing significantly to consumer price inflation, complicating anti-inflation policy and poverty reduction.
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Russia has seen even higher oil windfall in the past few months, which translates into likely fiscal surpluses this year and next. The government should not miss the opportunity provided by a large oil windfall to substantially improve its long-term fiscal position, further reduce inflation, and, therefore, ensure a strong basis for durable stability and healthy growth in the future.
... See More + Rising domestic demand and credit activity are increasingly supporting solid growth. Overall, labor market conditions improved recently while poverty was broadly flat during and after the crisis, but unemployment and poverty in many regions remain difficult. Further reductions in poverty will require greater policy focus and persistence in implementing more effective and targeted programs, especially in the poorest regions. Two new special-topic analyses focus on export diversification in Russia, and food and energy inflation in Europe and Central Asia region. In the first, results show that productivity is the key to exports and that lack of competition and entrepreneurial innovation are relevant obstacles to the emergence of new, potentially exportable products. In the second, it is shown that food and energy prices in Russia and other countries in Europe and Central Asia are contributing significantly to consumer price inflation, complicating anti-inflation policy and poverty reduction.
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Despite the recent slowdown, the underlying growth of the global economy remains solid. After a 4 percent growth in 2010, Russia's real output is expected to grow 4.4 percent in 2011, increasingly driven by domestic demand.
... See More + Russia's households have absorbed the food price shock thanks to a combination of higher wages and pensions, and resort to private and public safety nets. The country emerged from the global recession with lower unemployment and poverty than feared. But global risks and uncertainties increased with the new oil shock. Although the short-term impact will be positive for Russia's export and fiscal revenues, there is no room for complacency. Macroeconomic policy should focus on the short-term objective of controlling inflation and medium-term fiscal adjustment towards long-term, sustainable level of non-oil fiscal deficit. Improving the efficiency of public expenditure to create fiscal space for productive infrastructure and strengthening the investment climate for the private sector remain among key long-term challenges. The ongoing rethinking of the government's long-term strategy and a period of high oil revenues provide an opportunity to focus on these long-term issues more forcefully than during the global crisis.
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Despite the recent slowdown, the underlying growth of the global economy remains solid. After a 4 percent growth in 2010, Russia's real output is expected to grow 4.4 percent in 2011, increasingly driven by domestic demand.
... See More + Russia's households have absorbed the food price shock thanks to a combination of higher wages and pensions, and resort to private and public safety nets. The country emerged from the global recession with lower unemployment and poverty than feared. But global risks and uncertainties increased with the new oil shock. Although the short-term impact will be positive for Russia's export and fiscal revenues, there is no room for complacency. Macroeconomic policy should focus on the short-term objective of controlling inflation and medium-term fiscal adjustment towards long-term, sustainable level of non-oil fiscal deficit. Improving the efficiency of public expenditure to create fiscal space for productive infrastructure and strengthening the investment climate for the private sector remain among key long-term challenges. The ongoing rethinking of the government's long-term strategy and a period of high oil revenues provide an opportunity to focus on these long-term issues more forcefully than during the global crisis.
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Amid heightened global uncertainties, Russia is experiencing a bumpy recovery. Domestic demand is rising, but unemployment remains high, and credit and investment remain limited.
... See More + The budget has benefited from higher oil prices, but fiscal consolidation remains important in the medium term. Crumbling infrastructure, especially in transport, could hamper the economy's competitiveness and longer-term growth prospects. The debt crisis in Western Europe sharpens the downside risks to global recovery and oil prices. But the effects on Russia are likely to be blunted by its stronger fiscal and debt positions and by limited trade and financial links with the affected countries. Russia is likely to grow by 4.5 percent in 2010, followed by 4.8 percent in 2011, as domestic demand expands in line with gradual improvements in the labor and credit markets. Employment is expected to improve gradually, however, enabling some further reductions in poverty.
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The global economy has returned to moderate growth amid uncertainty, but the feared 'double dip' recession remains unlikely. The Europe and Central Asia region-hardest hit by the crisis-is growing slower than the rest of the world.
... See More + In Russia, growth is being led more by domestic demand-consumption and investment-and credit is beginning to flow. But the way Russian policymakers manage the short-term macroeconomic risks of fiscal spending and inflation-and the long-term challenge of competitiveness and diversification under tighter budget constraint, will determine the medium-term prospects. In developing countries, growth is also easing but remains robust in developing Asia. Most countries in the Europe and Central Asia (ECA) region, which was hardest hit by the crisis-returned to growth, albeit less robust than in other regions. Growth in the region is driven by the bounce back of external trade but domestic demand is also growing, especially in the largest regional economies, Russia, Poland, and Turkey.
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The global economy has returned to moderate growth amid uncertainty, but the feared 'double dip' recession remains unlikely. The Europe and Central Asia region-hardest hit by the crisis-is growing slower than the rest of the world.
... See More + In Russia, growth is being led more by domestic demand-consumption and investment-and credit is beginning to flow. But the way Russian policymakers manage the short-term macroeconomic risks of fiscal spending and inflation-and the long-term challenge of competitiveness and diversification under tighter budget constraint, will determine the medium-term prospects. In developing countries, growth is also easing but remains robust in developing Asia. Most countries in the Europe and Central Asia (ECA) region, which was hardest hit by the crisis-returned to growth, albeit less robust than in other regions. Growth in the region is driven by the bounce back of external trade but domestic demand is also growing, especially in the largest regional economies, Russia, Poland, and Turkey.
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Amid heightened global uncertainties, Russia is experiencing a bumpy recovery. Domestic demand is rising, but unemployment remains high, and credit and investment remain limited.
... See More + The budget has benefited from higher oil prices, but fiscal consolidation remains important in the medium term. Crumbling infrastructure, especially in transport, could hamper the economy's competitiveness and longer-term growth prospects. The debt crisis in Western Europe sharpens the downside risks to global recovery and oil prices. But the effects on Russia are likely to be blunted by its stronger fiscal and debt positions and by limited trade and financial links with the affected countries. Russia is likely to grow by 4.5 percent in 2010, followed by 4.8 percent in 2011, as domestic demand expands in line with gradual improvements in the labor and credit markets. Employment is expected to improve gradually, however, enabling some further reductions in poverty.
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